Kamis, 03 Desember 2009

Wal-Mart Stores: “Every Day Low Prices” In China

Wal-Mart is one the world’s largest retailer, owned by Sam Walton with the first store opened in 1962 in Rogers, Arkansas. On January 31st 2005, Wal-Mart stores reported net sales of US$285 billion, had a presence in nine countries with 5,289 stores and 1,6 million employees worldwide, offered multiple store formats including discount stores, supercentres, warehouse stores and neighbourhood markets, and was not only the largest company in the world but also the most admired company in the US according to Fortune Magazine.

Many attributed Wal-Mart’s success to its well-known model of selling brand-name products for less. Wal-Mart rightly focused on two major value drivers: price and service. The value of “Every Day Low Prices (ELDP)’s objective was to offer the same merchandise as other local stores, but at 20% less. “Roll-back” philosophy is aimed at lowering prices even further when there was an opportunity to do so, for example through price negotiation with supplier. The other value is “Customer is Number One,” which rules such as “exceed your customers’ expectation, ten feet rule, sundown rule.

According to Thompson, there are components of a company’s macro environment. In the outer ring those are general economic conditions, legislation and regulations, population demographics, societal values and lifestyles, and technology; while there are also immediate industry and competitive environment such as substitute products, buyers, new entrants, rival firms, and suppliers. However, the factors and forces in a company’s macro environment having the biggest strategy-shaping impact typically pertain to the company’s immediate industry and competitive environment.
Although Wal-Mart in United States is very successful with its success model: Small town location, relentless cost control, and partnership with supplier, however it did not enjoy the same success in China. By focusing more on the macroenvironment factors mentioned above, the failure of the Wal-Mart can be analyzed as bellow:

a.General economic condition in China is variable due to income disparity. It causes the needs and consumption pattern of the people become so diverse, result in inefficiency for a retailer-business in fulfilling the needs.

b.In term of legislation and regulation in China, it is very stricted and ruled by government. Regulation stated that only three stores were allowed to be launched in one city, and only a handful of cities were open to foreign retailers. Every store opening had to be approved by the central government.

c.Not only in size of land but also the population in China is vast. This actually can be one of the opportunity for business growth. However, this is not ideally happen due to some many factors that are being discussed.

d.Societal values and lifestyles in Chine can be related to the culture and behaviour. In China people consider that going to commercial center as an entertainment, as a result they do many trips but only make little purchase. According to them, the freshness of the food as the most important factor in its quality, and in many cases, fresh mean alive. It becomes additional cost and inefficiency for the retailer due to poor transportation network. Meanwhile, the condition is worsen by the rate of shoplifting (theft) which is higher (up to 5% of sales) compare to an international standard of 0.3%. This also causes the loss of Wal-Mart.

e.Technology in China was not really advance though. Under developed highway network and unconnected transportation are seriously fragmented. As ccnfirmed by Wal-Mart's chief of international operation, John Menzer, "the biggest obstacle Wal-Mart faced in mainland China was the lack of an information technology network with suppliers, making purchasing and distribution difficult." Technology indeed is critical for Wal-Mart success where the web-based system allowed suppliers hourly tracking of sales, inventory and pricing of their goods, and satellites connected the headquarter to every store and supplier for real-time communication. Lack of an information technology network and regulatory ban of satellite usage impaired the retailer's efficiency in communicating with its 15,000 local suppliers who supplied more than 95% of the goods sold in its local stores

In conclusion, competition is always there: substitute products, buyers, new entrants, rival firms, and suppliers. However, the major causes of Wal-Mart’s failure in China is more due to macro environment factors: the highly fragmented market, impaired distribution network and unique consumer behavior in China pushed Wal-Mar's operating cost higher and worked against a straight duplication of its home model.

The lesson learned from the Wal-Mart in China case is that the same business strategy cannot be implemented for all situation, therefore, it needs to be renew and readjust.

Source: Asia Case Research Center

Jumat, 18 September 2009

The Impact of the Internet

The Impact of the Internet from the Producers Point of View
One of the key factors that the internet has a hand is reducing the price of inputs for firms. The lowest price at which a firm can sell a good without losing money is the amount of money that it costs to produce it. As a firms input prices decrease; they will be willing to supply more at a lower price.

One way that this happens is B2B (business to business- when firms trade directly with one another) e-commerce. B2B e-commerce cuts companies’ costs in three ways. First, it reduces procurement costs, making it easier to find the cheapest supplier and cutting the cost of processing transactions. Second, it allows better supply-chain management. And third, it makes possible tighter inventory control, so that firms can reduce their stocks or even eliminate them. Through these three channels B2B e-commerce reduces firms’ production costs, by increasing efficiency or by squeezing suppliers’ profit margins (A Thinkers Guide).

Another way in which the internet reduces the cost of inputs for firms is the degree to which it facilitates outsourcing. For example, a Hollywood studio once employed everyone in-house from the actors to the lighting technicians. Today studios have retreated to their core competencies. For a film, they now assemble the teams of self-employed people and small businesses. The Internet is expected to push other industries in the same direction. Companies will find it easier to outsource and to use communications to develop deeper relations with suppliers, distributors and many others who might once have been vertically integrated into the firm (When Companies Connect).

Another consequence of the Internet is that it enables firms to practice price discrimination, which is when firms charge different prices to different consumers for the same product. Price discrimination is very relevant to High Tech Industries for two reasons: first, due to the cost structures mentioned previously (high fixed costs, low marginal costs) price will often exceed marginal costs, meaning that the profit benefits to practicing price discrimination are very apparent. Second, Information technology allows for fine-grained observation and analysis of consumer behavior. This permits various kinds of marketing strategies that were previously extremely difficult to carry out, at least on a large scale (Varian et al. 12). For example, a seller can offer prices and goods that are differentiated by individual behavior and/or characteristics.

The Impact of the Internet from the Consumers Point of View
One of the major factors impacting demand is the price of the product, which we saw from the previous section, the Internet has a hand in lowering. At lower prices, consumers will demand more. More importantly however, is the impact of the internet in making prices more transparent. In fact, it’s been suggested that the new economy should be called the “nude economy” because the Internet makes it more transparent and exposed, in that it's easier for buyers and sellers to compare prices (A Thinkers Guide).

One of the traditional features of capitalism is information asymmetry, which is that someone (usually an expert) knows more than someone else (usually a consumer). But information asymmetries everywhere have been emaciated by the internet. The Internet is remarkably efficient at shifting information from the hands of those who have it into the hands of those who do not. Whether the case is term life insurance policies, the dealer invoice of autos, or the price of prescription medication the information existed but in a vastly scattered way. The Internet has vastly shrunk the gap between the experts and the public (Levitt and Dubner 61-62). Even in markets where there are relatively few direct online transactions such as auto sales, consumers appear to do quite a bit of information gathering before purchase.
The Impact of the Internet on the Market Itself
As mentioned previously, the economic principles of traditional markets still apply to the internet. Information is the currency of the Internet: it can be transmitted efficiently, conveniently, inexpensively, and is available to anyone. Theoretically, market friction should be reduced when information is more readily available to consumers and/or when consumer search is less costly (Elberse et al. 3). It has been found that internet markets are more efficient than conventional markets with respect to average price levels, menu costs, and price elasticity (Elberse et al. 4).

One consequence of this is a lowering of transaction costs. For instance, it’s been postulated that the potential for transactions cost savings from transition to the Internet is especially high in the health care sector, because it is so large (14 percent of GDP), so information-intensive, and so dependent on paper records (Litan and Rivlin). A lowering of transaction costs benefits both consumers and producers.

Another impact of the Internet is its ability to generate different pricing mechanisms, and in particular to allow price and product comparisons to be made and various kinds of auctions and exchanges to take place. Two things are making these possible. One is that the Internet provides a perfect medium for aggregating buyers and sellers from all around the world. The second is that the Internet offers an excellent way of comparing prices and collecting information, for example on new products, or on recent bids. Once again, to replicate this offline would be costly and time-consuming (In the Great Web Bazaar).

Thus the net effect of the internet is to lower costs for both the supplier and consumer as well as by more efficiently matching up supplies and consumers with each other. This results in a more efficient marketplace. However, despite the positive impact of the internet, internet markets are not nearly as efficient as theories would predict (Elberse et al. 5).


Source: http://www.econport.org.

Kamis, 27 Agustus 2009

Impact on the Internet on the Horizontal Boundaries of a Firm

Over these years, internet has been growing so widely. The internet technology opens a new channel for business opportunity, principally because of this enabling the limitless of information exchange with an easy, fast, and low cost. See how we can easily find anything we want to know just by utilizing the internet. The implication of this is that it will promote the political, social, economic, and cultural aspects of a country, heading to globalization. Some people with the entrepreneur sense are just very quick response to the growth of the internet technology, viewing it as the opportunity and as a tool to grow the business across the boundary. Therefore, they switch from the traditional way of doing business to a new way of operating business through the virtual business or e-commerce.

There are many theories from the researcher and expert, claiming that the internet technology is proven to be beneficial in growing a business. In a book by Tawfik Jelassi and Albrecht Enders, titled Strategies for e-Business: Creating Value through Electronic and Mobile Commerce, they point out two concepts that are feasible in e-commerce. The first concept is economies of scale. This means that by increasing the production output, the company decreasing their operation cost. Their second concept is economies of scope. This means that expanding the variety of products sold using the same R&D, production and delivery assets.

We can see the success of e-commerce on eBay, a (virtual) company hosted in California, belongs to Pierre Omidyar, where the company act as a virtual market for transactions of anything, starting from household goods, computers, consumer electronics and other tradables (ticket to sporting events). Also Bertelsmann online company, BoL.de in Germany, a business in selling books through online channel.

Further that that, we can also see the trend begins to spread over in Indonesia. Namely Bhinneka.com, a company owned by Hendrik Tio, which was first operated as a shop, selling computer peripheral which also in 1997 began to operate its online business transactions. The same case also happen in Gramedia book store. It is no longer just a book store that we can find in almost every shopping center, but we also can visit its online shop and make a purchase without having to go to a shopping center.

From the point of view of the writer, she sees that the growth of internet users in Indonesia might not as high as in American or European countries. Just like the case of Bhinneka.com, the profit of the company could not cover the investment cost on the technology (based on the data year 1999-2002, a case study by Pierre Wirawan, http://wirawans.wordpress.com). Therefore, the concept of virtual business in Indonesia still needs to be supported by ‘traditional’ concept of business. However, the writers believes that in the long term the concept of e-commerce will does give higher revenue for the company, considering that the technology has the forcing power over the human and environment. They who do not have the ability to adapt with the new technology will surely be blown away, as the out-dated technology dies.

Rabu, 12 Agustus 2009

e-Value Creation Index for automotive business

The automotive world has long recognized that intangible assets such as brand equity, innovation and human capital play a role in determining business success or failure. But measuring and managing those assets and their impact on a company’s market value has never been easy. Therefore, as published in an article, it tells that Dr. Pam Cohen Kalafut developed CGE&Y’s Automotive Value Creation IndexSM (VCI) based on the principles put forth in her book. “This 50 percent is based on intangibles like strategy execution, brand, human capital, innovation and leadership. The reason behind this, according to Kalafut, is lies within the fact that the markets are valuing your intangibles every day, whether you want them to or not. Yet, most companies aren’t able to measure, let alone manage and capitalize on these aspects of their business.”

The Value Creation Index (VCI) that had been developed by CGE&Y are for automotive OEMs and a second VCI specifically for automotive suppliers. The Automotive VCI models create a quantified performance measurement system, allowing intangibles to be linked to firm performance.

The VCI measures three broad categories of intangibles: Management—consisting of leadership, strategy execution, and communication and transparency; Relationships—brand equity, reputation, and alliances and etworks; Organization—technology and processes, human capital, workplace organization and culture, innovation, intellectual capital and adaptability.

The VCI is built using multiple measures for each of the individual intangible driver categories. Data are ollected from a variety of sources: objective and proprietary, academic, other research and publicly available information.

The index scores demonstrate the correlation between a particular company’s intangible assets and its market value. Kalafut points out that the correlation between the overall Value Creation Index score and market value is very strong for automotive manufacturers and suppliers.

CGE&Y’s Automotive VCI methodology creates a detailed performance measurement system through which critical company-specific intangible value drivers are measured and linked to performance. This approach allows businesses to quantify the expected effect of a change in the intangible’s VCI score on financial indicators such as stock price, P/E ratio, EBITDA, cash flow or market share, and to determine which strategic or capital investment decisions will have the most significant return.

The VCI value analysis can quickly identify the operational value drivers that have the biggest impact on a company’s bottom line. With this information, executives can:
• Reallocate capital expenditures to gain higher paybacks.
• Measure the impact of growth and similar initiatives.
• Implement a robust measurement system that correlates non-financial drivers to financial results.
• Create a performance measurement benchmarking system that can be used to track changes across time, and understand a company’s competitive advantages as well as those of their competitors.

In summary, the result of this Value Creation Index enable the companies to make strategic and capital investment decisions based on quantitative values rather than relying on educated guesses.

Source: Cap Gemini (Ernest & Young)

Rabu, 29 Juli 2009

Market for e-Business : Case of “HP Exists e-business Software Market (July 15, 2002)”

HP in the past two years has made a big push into the e-business software market to better compete against its two principal rivals, IBM and Sun Microsystems, high-end computer makers that have more extensive software portfolios, but since then decided to discontinue the core pieces of its NetAction product line, which in included application-server software designed for Web transactions, and related software for building Web services, technology that allows companies to interact and conduct business via the Internet.

Back to the history, HP spent $470 million in October 2000 to acquire Bluestone Software, a small company that competed against IBM, Sun and Oracle, to build up its application server software arsenal. However, its turn out that the HP owns only 4 percent of the application server market, far behind market share leader of BEA and IBM.

Peter Blackmore, executive vice president of HP's enterprise systems group, said the company has suffered heavy losses with its own e-business software. He says that many of the assets HP has will be given up. As quoted, Blackmore says "We move to a partnership model and then make that part of the business, avoid the losses we have and make the overall software business profitable."

HP will refocus its software strategy on three technologies that manage software: HP OpenView, used to manage and monitor the health of businesses' computer systems; HP Utility Data Center, used to simplify management of sprawling data centers; and HP OpenCall, used by telecommunications service providers to offer telephony and Internet services to customers

As from the case of HP, we could relate the failure with the theory exposed below. The market analysis include the thorough understanding about our customer: who they are, their characteristics, and why they are likely to buy from our business. The process of writing the market analysis requires you to define your target markets and analyze how we will position our product or service to arouse and fulfill their needs in order to maximize sales.

In a full-scale business plan the market analysis is part of the marketing plan section, which includes:

  • Market analysis: a definition and description of prospective customers, including target markets, size and structure of the customer base, and growth prospects.
  • Pricing strategy: setting the price of the product or service based on methods such as cost-plus pricing, demand pricing, and competitive pricing; and the use of innovative pricing strategies such as penetration pricing, flexible pricing, and market skimming.
  • Promotion plan: the communication channels you will use to make the customer aware of your product/service and convince them to purchase (e.g., advertising, on-line demonstration videos, packaging). Promotion also includes tracking your customers (e.g., confirming who are your customers and how did they hear about you) and encouraging them to purchase again.
  • Distribution plan: the distribution channel you will use to move the product or service to the customer (e.g., direct sales, wholesale distributors, brokers) and, if necessary, back again (e.g., returns).
  • Demand forecast: estimates of product or service sales, based on the market analysis and assumptions about the effectiveness of the pricing, promotion, and distribution strategies.
However, HP failure to enter the application server market could be one or some of those reasons. It is quite clear that HP did a lot of great research and development, but had failed to transfer the technology from the lab to the field. Even though HP acquired good technology, but as a hardware company, it is just did not work to try to drive out software infrastructure. Often it is best to focus on our core competency.

Selasa, 21 Juli 2009

Impact of the Internet : Economic implications of e-commerce

OVERVIEW


Business and economy are inextricably linked with the development and implementation of new technology. While e-commerce clearly has a positive impact on the business sector, doubts have been raised about its impact on the macroeconomic growth and development.

The information revolution aided by the revolution in the telecommunications and institutional innovations had initially promised to change the nature of the market altogether. Today market is a place where there is no intermediaries between a seller of a good and its final buyer to the mutual benefit of both parties (Sengupta, 2004). The Internet and its enabled technologies (especially electronic commerce) have caused the costs of many kinds of market mterachon to plummet (Saloner, 2001). Not only cost reduction, e-commerce has the potential to stimulate growth and employment in industrialized as well as developing countries. Further, e-commerce allows economics agents (both buyers and sellers) to interact more effectively by creating new market opportunities (Mukhopadhyay, 2002). Thus, e-commerce has strong economic implications at both micro and macro level.

E-COMMERCE AND ECONOMIC GROWTH

While e-commerce clearly has a positive impact on the business sector, doubts have been raised about its impact on the macroeconomic growth, and productive growth (2) in particular. The US, which leads the world in IT and e-commerce, has had a notable economic performance, particularly in terms of productive growth, since 1995. But, the same was not happened with the developing countries as they failed to catch up technologically with the industrialized world.

IMPACT OF E-COMMERCE ON ECONOMY

Business and the economy are inextricably linked with the development and implementation of new technology (Tassabehji, 2003). Growth and development of any modern economy has been recognized by many economic theorists, such as Kondratieff, Schumpeter, Mensch and Porter, to be based on innovation of new technology. Mensch stressed that only technological innovations can overcome depression and that government must implement an aggressive innovation policy to stimulate the search for new and basic innovation. Further, Porter (1990), emphasizes that the prosperity and competitive advantage of a nation is no longer as a result of a nation's natural resources and its labour force, but rather the ability of its industry to innovate and upgrade. This can be seen as a disruptive technology on a macro environmental level. Continuous growth of e-commerce is expected to have deep impact on structure and functioning of economies at various levels and overall impact on macro-economy.

IMPACT ON COST, PRICE AND COMPETITION

The e-commerce lowers costs because the Internet lowers selling search costs as well as, by allowing seller to communicate product information cost effectively to potential buyers, and by offering sellers new ways to reach buyers through the targeted advertisement and one-on-one advertising. Thus it is helpful in reducing the search costs on both the sides. By reducing search costs on both sides of the market, it appears likely that buyers will be able to consider more product offering and will identify and purchase products that better match their needs, with a resulting increase in economic efficiency.

But the reduction in the cost combined with new capabilities of technology can set off more complex market dynamics (Bakos, 2001).E-Commerce technologies have the potential to significantly increase competition by increasing consumers' choice of products and traders (ACCC, 2001). However, some of the distinguishing characteristics of the e-commerce set up also have the potential for creating the monopoly power in the certain lines of products.

CONCLUSION

The emergence and rapid growth of Internet and E-Commerce has strong implications on economic and social activities. It is quite possible that these new technologies might transform the future of economic and societal landscape.

At the general level, there are two types of potential economic gains from the use of E-commerce and IT enabled technologies. First, are the gains in efficiency, both in static and dynamic. Static gains are one-time, and come from more efficient use of scarce resources, allowing higher consumption in the present. Dynamics gains come from higher growth, potentially raising the entire future stream of consumption and population. Efficiency gains of e-commerce also come about through the enabling of new digitized goods and services. The second type of potential benefits comes from cost reduction.

As e-commerce transcendens the barriers of geographical boundaries, the concept like the place of transactions and place of consumption become immaterial. With the emergence and growth of digital money in the economy, the chances of frauds have also increased. Another most difficult issue is the planning regarding the adoption and implementation of e-commerce technology in the various economic activities. In nutshell, with the e-commerce based economic models, there is little to lose and more to gain.

Source:

"Economic Implication of e-Commerce"

Indian Journal of Economics and Business, Dec, 2007 by Sumanjeet: http://findarticles.com/